Is climate change to blame for high food prices?

If you were to throw out the question of what, if any, is the connection between climate change and the current food crisis, I suspect that many people would answer instinctively that global warming is at least partially responsible for the spiraling food prices. Why? Because –they would argue- it caused the various extreme weather events that disrupted production in major producing regions from Eastern Europe and Central Asia to Australia to Latin America’s Southern Cone.

Is the hypothesis of that connection valid? Well, no and yes. ‘No’, in the sense that we really can’t attribute specific climatic events to global warming. After all, even without climate change, extreme events happen: a once-in-a-hundred-year event happens once in a hundred years (duh!).

And there’s really no way of knowing whether by the luck of the draw this happened to be the year, or whether the event has become more likely because the probability distribution shifted. (And to be able to say with confidence that a probability distribution of these rare events has shifted would require a sample of observations many centuries long.)

But ‘yes’ in the sense that the science is pretty clear that climate change will depress global food production (in the absence of offsetting technological change), change its distribution, and increase its variability.

This, in turn, makes it even more critical than ever that global markets remain open and facilitate agricultural trade, for two reasons.

In the long run, as patterns of comparative advantage in food production change, moving food from countries where it is efficiently produced to food-deficit countries, will require trade patterns different from those currently in use. Second, on a year-to-year basis, the greater variability in weather will create short-term local shocks to food supply that will require rapid adjustment of food trade to avoid shortages.

Unfortunately, one of the lessons of the recent precipitous increases in food prices is that when shortages arise, there is a tendency for countries to react with “beggar thy neighbor” trade policies that insulate domestic consumers and producers from international price movements.

In doing so, they increase the volatility of global prices and shift the adjustment costs onto others. Such actions included increases in export barriers, which are now widely understood to have amplified the spike. Export bans accounted for an estimated 40 percent of the world price increase for rice and 25 percent of the increase for wheat according to Will Martin and Kim Anderson's study Trade Distortions and Food Price Surges. But less well understood is the role of the ad hoc reductions in import barriers in many countries, which have a very similar effect in that they reduced price fluctuations domestically while magnifying the variability of international prices. The impact of these import tariff reductions has not to my knowledge been quantified, but given how common was the practice, the aggregate impact could have been quite significant. Neither of these measures is effectively disciplined under current WTO rules.

And there is another important three-way connection among climate change, food crises and global trade policy.

Part of the solution to reducing Greenhouse Gas emissions (GHG) from transportation will inevitably involve increased substitution of biofuels for gasoline and diesel. However, while the quantitative significance is debated, it is clear that increased cultivation of crops for biofuels will have a greater and greater impact on land available for food crops.

To minimize this tradeoff, it is essential to ensure that the crops for biofuels are grown in the most land-efficient way possible. And here’s where the trade connection comes in: liberalizing trade in biofuels could increase competition in the sector, thus helping improve efficiency, bring down costs, and enable the world’s most efficient producers to expand their share of the biofuels market.

For example, it is estimated that producing a liter of ethanol from sugarcane in Brazil requires only half the land area needed to produce the same liter from corn in the US. Transferring production from the US to Brazil would therefore reduce the amount of land diverted from growing foods. But currently, biofuels promotion policies distort international trade patterns and impede this shift, and at the same time impose large costs on the populations of the countries employing them.

Of course, to fully realize these benefits, the ramping up production in Brazil must be done without deforesting land, but Brazil has plentiful degraded pasturelands which could be used more productively for these crops.